SEPA Direct Debit for Billers: the SDD Business To Business Scheme Timelines

The
Direct Debit Schemes in a nutshell

The
Direct Debit (
) Core and the
Business to Business (
B2B) Schemes developed by the European Payments Council (
) - like any other direct debit schemes - are based on the following concept: 'I request money from someone else, and, with his prior approval, I can credit it to myself'. For the first time ever,
Schemes enable consumers to make cross-border direct debit payments throughout the 32 Single Euro Payments Area (
) countries1. At the same time, the
Schemes can of course be used domestically. The payer and the biller2 must each hold an account with a payment service provider (
) located within
. The accounts may be held in either euro or in any other currency. The transfer of funds (money) between the payer's bank3 and the biller's bank always takes place in the euro currency. Currency conversion aspects are out of scope of the scheme.

The main differences between the
Core and the
B2B Scheme are:

Services and products based on the
B2B Scheme are only available to businesses; the payer must not be a private individual (consumer).

In the
B2B Scheme, the payer (a business) is not entitled to obtain a refund of an authorised transaction.

The
B2B Scheme requires the payer's bank to ensure that the collection is authorised by checking the collection against mandate information. The payer's bank and the payer are required to agree on the verification to be performed for each
B2B direct debit.

Responding to the specific needs of the business community, the
B2B Scheme offers a significantly shorter timeline for presenting direct debits and a reduced return period.

The reason for the shorter timelines of the
B2B Scheme, compared to the
Core Scheme, is that business payments by direct debit require a timely certainty about the finality of the payments, so that goods or services can be delivered whilst minimising financial risks and costs for the payee. For business transactions which do not require this certainty, the
Core Scheme can also be a satisfactory solution for making payments.

For more information on the
Schemes, refer to the
publication 'Shortcut to
Direct Debit' (see 'related links' below). This four page publication summarises the main features of the
Schemes in non-technical terms, including their key benefits. Detailed information on the
Schemes is available on the
Website (see 'related links' below).

What a difference a day makes

To understand the timelines governing the
B2B Scheme, the following terms need to be introduced:

Due date: the
Schemes allow payers and billers to anticipate the precise date (due date), when their account will be debited or credited, respectively. The due date is assigned by the biller and should be agreed with the payer in the contract underlying a direct debit collection.

Settlement date: the day on which settlement4 takes place; i.e. the day when the funds are transferred between the bank of the payer and the bank of the biller.

Debit date: the day on which the payer's account is debited.

Keeping in mind that the process of collecting a payment by direct debit is initiated by the biller, the biller (and, in consequence, the biller's bank) must respect the following timelines under the
B2B Scheme: the payer's bank must receive the request for a direct debit collection (first, one of or subsequent) at least one inter-bank business days prior to the due date.

The
B2B Scheme defines a 'calendar day', a 'banking business day' and an 'interbank business day'. A calendar day is any day of the year. A banking business day means, in relation to a bank, a day when a bank is open for business, as required for the execution of an
payment. An inter-bank business day is when banks are open for business between banks. The 'Trans-European Automated Real-time Gross Settlement Express Transfer System' (TARGET) calendar is used to identify inter-bank business days. To avoid frequent changes to TARGET closing days, due to national holidays for example and thus the introduction of uncertainties into financial markets, a long-term calendar for TARGET closing days has been established and applied since 2002. This calendar is published by the European Central Bank. Settlement of funds, resulting from direct debit payments always takes place on an inter-bank business day.

Prior to the due date, the biller must observe the following steps: the biller must obtain a mandate from the payer; the mandate is signed by the payer to authorise the biller to collect a payment and to instruct the payer's bank to pay those collections; the mandate can be issued in paper or electronic format and expires 36 months after the last initiated collection. The signed mandate must also be stored by the biller as long as the mandate is valid and for at least 14 months after the last collection.

The
B2B Scheme is available to business customers only, i.e. for customers who are not automatically covered by the refund right for authorised transactions defined in the Payment Services Directive (PSD). Business customers are allowed by the applicable national law to opt out of the right for a refund defined in the PSD. Therefore, unlike the
Core Scheme, the
B2B Scheme excludes the right for a refund for authorised collections. Due to this and the potentially high amounts of the collections, the payer's bank is obliged:

To verify, before debiting the payer's account, that the mandate related data received as part of the first collection complies with the mandate related data received, confirmed and authorised by the payer.

To check the first and the subsequent collections against the stored mandate data, and the related verification instructions received from the payer.

To oblige payers to inform the debtor bank on any amendment or cancellation of the mandate.

It should be kept in mind that a payer who makes a payment under the
B2B Scheme retains the right to a refund for unauthorised transactions during 13 months from the debit date as stipulated by the PSD. Considering however that in the case of a collection under the
B2B Scheme, the payer's bank must verify the existence of the mandate and the payer is obliged to inform his bank of any cancellation of a mandate, it is expected that refunds for unauthorised transactions will be exceptional.

The biller must send a 'pre-notification', an invoice for example, to the payer at least 14 calendar days before collecting the payment, unless a different timeline has been agreed between the payer and the biller. The pre-notification includes the due date and the amount of the collection. The pre-notification may be sent only once even for recurrent direct debit collections if the due dates and the amounts of future collections are stated. For example: a biller may send a single pre-notification annually to the payer if this pre-notification states that the amount of the monthly payment will be collected. The biller must send the payment messages to their bank in line with the agreement with that bank, so that the correct procedures and timelines are met. The biller's bank must then send the payment messages to the bank of the payer via a Clearing and Settlement Mechanism (CSM)5. The payment messages must be at the disposal of the bank of the payer at least one inter-bank business day before the due date. The bank of the payer can store the payment message or offer any other service to the payer during the period between the receipt of the payment message and the due date. If the due date falls on a day which is not an inter-bank business day, then the settlement date will be the next inter-bank business day.

On the due date, the account of the payer is debited and the amount of the payment presented by the biller's bank is settled, i.e. the funds are automatically transferred from the bank of the payer to the bank of the biller. As from the due date, the biller's bank can credit the account of the biller, according to the agreement between the biller and his bank. If the status of the payer's account does not allow the bank to debit the account, due to insufficient funds for example, then the bank may continue to try to debit the payer's account until two inter-bank business days after the due date.

After the due date: up to two inter-bank business days after the due date, the bank of the payer may return a payment and refuse to debit the account of the payer, due to insufficient funds or because the bank is unable to accept the payment for other reasons. It could be the case, that the verification instructions agreed between the payer and the payer's bank at the signing of the mandate are incorrect. Or it could be the case, that the account is closed or blocked for direct debit. In another scenario, the payer might request the bank to return the payment as the payer does not agree with the execution of the payment. Two inter-bank business days is the limit for the bank of the payer to send a 'return' message to the bank of the biller through a CSM. The CSM will settle the amount of the return to the benefit of the bank of the payer, as the amount of the original payment has already been settled on the due date.

The general rule and applicable exceptions

The due date, debit date and settlement date are the same for a direct debit payment. This general rule applies when the bank of the payer and the bank of the biller are materially able to settle on a due date.

Banks however, may have technical or communications problems which make it impossible to settle on that date. Further, even if the CSM executing the settlement action is open for business on the due date, other entities in a country may be closed due to public holidays for example. Also, even if the bank of the payer is able to debit the payer's account on the due date, the account of the payer may show an insufficient balance to allow the debit of the account.

Therefore, exceptions to this general rule apply. If for any reason the payment is delayed, then the due date must be replaced by the next possible date by the biller or their bank. At inter-bank level, a given due date may never be changed. If the due date falls on a day which is not an inter-bank business day, then the settlement date will be the next inter-bank business day. If the settlement date falls on a day which is not a banking business day for the payer's bank, then the debit date will be the next banking business day. If the bank of the payer cannot debit the payer's account on the due date (for example, there are insufficient funds), then the debit can be executed later.

The
B2B Scheme also defines timelines applicable to the execution of 'R-transactions' such as, for example, rejects. These timelines will be described in a separate article addressing 'R-transactions' scheduled for publication in a future edition of the
Newsletter.

Javier Santamaría is the Chair of the
Payment Schemes Working Group. Herman Segers is a former Secretary General of the
and also served as the editor of the
Rulebooks for many years.

Related links:

The
Website features a section dedicated to
. To view this section, clickhere

5In the
context, a payment system in the meaning of a 'funds transfer system' is referred to as a 'Clearing and Settlement Mechanism' (CSM). A funds transfer system enables the exchange of funds and messages between two
executing a payment transaction. These funds transfer systems can be
as well as separate business - public or private - entities (which may or may not be owned by banks). CSMs are also referred to as infrastructures.

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In this article

This is the fourth article in a series which provides information on specific aspects of the
Direct Debit (
) Schemes, relevant in particular to billers preparing for migration to
. In this context, the European Payments Council (
) invites readers to be mindful of the forthcoming European Union Regulation, which will define 1 February 2014 as the deadline in the euro area for the replacement of existing national euro direct debit schemes with harmonised European direct debit schemes. Keeping in mind that the process of collecting a payment by direct debit is initiated by the biller, the biller (and, in consequence, the biller's bank) must respect the timelines defined in the
Business to Business (B2B) Rulebook for the execution of a direct debit collection. In this article, Javier Santamaría and Herman Segers detail the timelines governing the
B2B Scheme.

Key Information in this Article

The standard time cycle of the
Business to Business Direct Debit (
B2B) Rulebook is: the payer’s bank must receive the request for a first, one-off or subsequent direct debit collection at the latest one inter-bank business day prior to the due date.

Responding to the specific needs of the business community, the
B2B Scheme offers a significantly shorter timeline for presenting direct debits and a reduced return period than the
Core Scheme.

The reason for the shorter timelines of the
B2B Scheme, compared to the
Core Scheme, is that business payments by direct debit require a timely certainty about the finality of the payments, so that goods or services can be delivered whilst minimising financial risks and costs for the payee. For business transactions, which do not require this certainty, the
Core Scheme can also be a satisfactory solution for making payments.

The due date is assigned by the biller and should be agreed with the payer in the contract underlying a direct debit collection. The due date may be later than the date agreed between the payer and the biller if the due date is not a banking business day or in case of other exceptional circumstances.

Javier Santamaría

Chair of the European Payments Council

Javier Santamaría is the Chair of the
since June 2012, and has been one of its members since its creation in 2002. During decades as a bank employee, Mr Santamaría accumulated a broad and balanced expertise in the intertwined dimensions of payments – business-related, operational, technical – across different client segments and product lines, in the legacy and the innovative spheres, which he now further develops as an independent self-employed professional. He has been immersed in both cooperative and competitive environments. Besides payments, he is interested in other banking fields and continues to be actively engaged in academic matters. Mr Santamaría is also Chair of the Iberpay Board. Former Head of Operations and Business Services, he was Senior Vice President at Banco Santander until December 2016. He was a member of the Board of the Euro Banking Association and a Director of the SWIFT Board until the end of 2016.